When evaluating any company, investors look to the CEO for guidance, as CEOs are the bridge to the Street. As the face of the company, the CEO has to earn the trust of investors, customers, and employees. Therefore, the CEO’s role is heavily weighted when considering a potential investment.
Inevitably, every company reaches an inflection point and is faced with a CEO transition. At this point, the CEO role is thrust into an even greater spotlight. A CEO transition is one of the most important events for a company. It can affect its corporate strategy and initiatives, its shareholders and other stakeholders, and, eventually, its success.
This transition can be unnerving for company shareholders who may believe that a new CEO could result in a shift in culture and strategy, sometimes for the worst. With the significant role that the CEO plays in the financial community’s decision to buy, sell, or hold a company’s shares, the transition must be managed appropriately. The CEO must communicate in a way that will dissipate any uncertainty and disbelief among the investors that could make the company’s stock price volatile in the short term.
Typically, in the eyes of the investors, a honeymoon period of six months is given after the announcement. However, there is a lot on the plate of the incoming CEO during this time. First, they must align their organization to respond to change by setting the vision and strategy, while also establishing the appropriate expectations across stakeholder groups and engaging with stakeholders through new and diverse communication channels.
IR firms must find a healthy balance for the CEO, leaving them enough time to focus on the business and connecting with investors. The CEO will spend a large portion of their time building relationships with critical stakeholders on the Street. In addition, everyone wants to meet with the new CEO during a transition period, so the CEO will need to prioritize meeting with investors.
Here are three things to consider to maximize the CEO’s time and prioritize selecting investor calls.
- Investors who are currently highly invested – This group of investors has already bought stock and sees upside potential in the company’s vision. This is an essential group of people to connect with sooner into the transition to avoid high stock volatility and devaluation. During a positive transition, they will need to be reassured that the new CEO is ready and able to continue the company’s success. In a time of company turmoil, they will want to hear that change is imminent and the new CEO is going to drive value back to the stock. Making time for these investors will aid in stock stabilization during the transition period, and these meetings should be prioritized.
- Investors who currently have a medium level of investment but sufficient capital to increase their holding – This group of investors tend to be interested in the stock but have not gone all in. In essence, they are intrigued but waiting for more. A CEO transition is a great time to meet with these investors, communicate the strategy going forward, and entice them to participate in future growth. The goal here is to assure investors that the transition will be positive, in order to avoid stock volatility while selling them on the future, This can entice a more significant buy-in. Since they have a smaller stake, these investors don’t have to be the main focus initially, but they are still valued shareholders and should be prioritized during the transition period.
- Investors who have capital but have not yet purchased stock – This group of investors can be those who have been following the story but have not invested yet or those who are new to the story. Either way, this is an opportunity to communicate your strategic plans for the company and begin to drive value through new investors. While this group is important, they should take a lower priority than the above investors during the initial period following the transition. These investors do not have as much capability to cause stock volatility in the initial period following a transition, but they do have a significant opportunity to grow future value.
The six-month period following the transition sets the tone for the CEO moving forward. If managed well, investor meetings during this time can be pivotal to driving value to the stock. While every company is different and situations are dynamic, this guideline can be helpful to follow during this time. If you want to know more, contact the Gilmartin team today.
Hannah Jeffrey, Analyst